Win-Win is a concept that’s been popular for a few decades, especially in the real estate industry. Most of the time though it’s been talk and not much walk. Since it supposedly refers to the buyer and seller in the same transaction, many would argue it’s a cruel hoax, and in fact an oxymoronic phrase. How can the buyer and seller both win?
It can only happen when the buyer and seller agree that their goals can only be realized with each other’s help. Become a team. It must be understood that taking an adversarial position will end any chance of both sides winning. This usually happens when one or usually both sides realize the market hasn’t and probably won’t provide the same solution they can by working together. Team players on the other hand can share in total victory.
This approach is almost impossible in the sales of homes in which the buyer intends to occupy their purchase. In that situation both sides by definition want obviously different outcomes. (The Real Estate Zebra begs to differ, saying most home buyers and sellers can team up for a mutual win.) Though they eventually can come to agreement, it’s nature is almost always adversarial. Captain Obvious lives. However, in the investment world, it sometimes happens that a buyer and seller can do something for each other that the market has failed miserably to provide.
Here is such a story.
Ellen and Rosa are my clients, referrals from family. Ellen had already executed the first leg of her Plan successfully. Rosa and I had just finished creating her Plan and were ready for the first leg, which was the sale of her condo. She’d acquired it several years ago and had well over $100k in net equity. She needed as much cash as possible in order to get her Plan going. She is 50ish and knows her retirement will not be more than marginally adequate if she doesn’t change her approach now.
Ellen desparately wanted a local condo in which she could opt to live at some future time. She was now living in a duplex that allowed her to keep costs way lower than condo living would allow. It wasn’t the most objective thing she could do as an investor, but it was an intensely held desire, and very important to her. Doing it in a market in which condo sellers were giving away the store was fortunate timing for her.
In an effort to obtain the most for Rosa’s condo that this market would allow, we marketed hard for almost five months. This included a couple price reductions, and an increase in commission for the buyer’s agent. We tried everything. The market was apathetic. Finally I decided to take the bull by the horns and put these two clients together. It was obvious to me they were a perfect match. I called them and told them of my idea, which was received by both with over the top enthusiasm. They both told me to make it happen.
Here’s how I structured their deal.
I established a price that was about 5% below the last sale in that development, which was almost six months old. It was about 10% less than the lowest asking price for her floor plan at the time. They both agreed it was fair. I asked Rosa if she’d consider leasing back from Ellen for a year, with a unilateral option (hers) for six additional months, then a mutual option for six more months. Apparently she hadn’t told me how much she loved living there because she just about reached through the phone and hugged me! She was willing to make the sacrifice but was only doing so because she felt improving her retirement was more important than maintaining the status quo. Ellen loved the idea as she felt very safe having Rosa as a tenant and not a stranger. Plus, a lease was far better than a month to month.
To make it work with the low down payment Ellen had was to have higher than market rent, which would have maxed out at about $1,200 a month. I did the calculations and told them $1,575 a month for the first year, then another $100 if the option to extend was exercised. Why did this work? Why did Rosa jump at this inflated rent amount? Because Rosa’s total monthly costs for that condo with her loan payments, HOA fee, and the rest was costing her well over $2,000. This was a savings of over $500 a month! And she didn’t have to move. And she’d end up with a net check from escrow of just under $145,000 – all of which was not taxable.
Rosa? She got her condo with a guaranteed quality tenant who was more than happy to be there. She was able to buy it with only 10% down, and still have it more than pay for itself. And because of the tax write-off she’d be saving roughly $3,500 in income taxes the following year. Furthermore, the price she paid was the lowest for that floorplan in over a year. She is still the only client who brings me Starbuck’s every time we meet at my office. A happy camper.
We gave the local market almost five months to produce results. Not even the threat of an offer. Two clients – one broker – three days – the perfect solution for both clients.
In my office we call that Win-Win. It’s what my clients hire me to do.Related posts: